Subject: Seeking Suggestions for Testing Professional Expenses (Opex)
Hello everyone,
I’m looking for effective procedures to conduct detailed testing on expenses incurred and paid to third-party professionals, as well as internal professionals, classified as operating expenses. If you have any insights or suggestions, I would greatly appreciate your input!
Thank you in advance!
One response
Testing professional expenses (Opex) can be crucial for ensuring the accuracy and legitimacy of the expenses reported by the entity. Here are several procedures you might consider when testing these expenses:
Check for supporting documentation that justifies the expense, such as contracts or engagement letters.
Authorization Review:
Verify that all expenses have been properly authorized. This could involve checking that invoices were approved by relevant managers or that they comply with the entity’s internal policies.
Service Evaluation:
Conduct a review of the services provided to confirm they were received and are reasonable based on industry standards. This may include contacting service providers directly or obtaining independent evaluations.
Sample Testing:
Select a representative sample of professional expenses for detailed testing. Ensure the sample reflects a range of expenses over time to detect any anomalies.
Comparison Against Budgets:
Compare actual expenses against budgeted amounts to identify significant variances. Investigate any large deviations to understand the context.
Analytical Procedures:
Perform trend analysis and ratio analysis to identify any unusual fluctuations or patterns. For example, analyze Opex trends over multiple periods and benchmark against industry averages.
Review of Related Parties:
If there are expenses involving related parties, ensure that they are fully disclosed and compliant with the entity’s policies and applicable regulations. Check that the pricing aligns with market rates.
Regression Analysis:
For recurring professional fees, consider using statistical analysis, such as regression analysis, to predict expected expenses based on historical data and assess the reasonableness of the current year’s amounts.
Interviews:
Conduct interviews with relevant personnel to gain insight into the nature of the professional services rendered and any changes in the usage of these services over time.
Compliance Testing:
By implementing these procedures, you can effectively test professional expenses and gain greater confidence in their validity and accuracy. Good luck with your examination!